Estate & Business Succession Planning for Donald J. Trump … and those on both sides of the aisle
Russell J. Fishkind, Esq. Charles Pawlik, CFA, CFP Saul Ewing, LLP Beacon Trust 1 Extra! Extra! Tweet all about it The Estate and Gift Tax has been repealed!
2 The American Taxpayer Relief Act of 2012
• Minimal estate tax planning for a couple under $10,980,000 ($5,490,000 each). • Major estate tax planning for those well above - taxed at 40%. • Short term GRAT’s, IDGT’s, discounts and low AFR still in play – for now. • Dynasty Planning alive and well … but
3 Success is Too Expensive
2012 2017 Medicare Tax 2017 Highest Tax
Long Term 15% 20% 3.8% 23.8% Capital Gain Short Term 35% 39.6% 3.8% 43.4% Capital Gain C Corporation 15% 20% 3.8% 23.8% Dividend Income Ordinary 35% 39.6% 3.8% 43.4% Income Estate Tax $5,250,000 $5,490,000 N/A 40% Exemption Exemption 40% 40%
4 The First Family Trump
• Donald J. Trump G2 Property Owner & Entrepreneur • 1st marriage (Ivana): Donald Trump, Jr., Ivanka Trump, Eric Trump • 2nd marriage (Marla): Tiffany Trump • 3rd marriage (Melania): Barron Trump
5 Without a Plan … it would be a Disaster!
• Investment Management $ 200M • Trump RE, LLC $ 700M • Trump Entertainment, LLC $ 500M • Life Insurance $ 50M • Trump Tower $ 35M • Mar-a-Lago $ 25M • TOTAL $ 1.510B
Approx: $600m Federal Estate Tax Plus the cost of litigation 6 Current Estate & Gift Tax Rules
40% Federal Estate Tax (FET) Rate 40% Federal Gift Tax Rate (FGT) $5,490,000 FET Exemption 2.4% 7520 rate - gift 2.2% mid term afr – sale 35% Combined Discount for Real Estate Entities 10% Discount for Liquid Entity
7 Together we Whatcan make We Do Estate In Life Planning– Great Again!
• Freeze estate values at market lows • Implement sale and gift transactions at historic low 7520 & federal afr interest rates • Establish Corporate Governance • Establish Charitable Foundation • Create Income Tax Deductions • Increase cash flow to children • Implement Business Succession Planning • Reduction in estate tax exposure • Promote family harmony: clarity & communication • Avoid probate wars: create a master plan 8 A World Class Team
• Advisors: accountant, attorney, financial planner, banker, appraiser, life insurance professional – all integrating their skill sets • Succession planning and corporate governance keys to family harmony • Utilize marketability and minority discounts
• Hedged approach: techniques to consider include Revocable Trust, GST Trust, Testamentary CRUT, Foundation, Taxable Gifts, Family Limited Partnership, Recapitalization, Holding Co. LLC, Sale to IDGT, Gift to Optimized GRATs • Incorporate charitable planning both during lifetime and on a testamentary basis to achieve income tax and estate tax efficiencies • Implement gifts to fund IDGT • Balance the needs of 3rd spouse with the needs of children from prior marriages.
9 These decisions are Huge!
Donald J. Trump Pour Over Will
•Choose Executors and Trustees •Compensation •Decision Making – Majority vs. Unanimity Donald J. Trump •No Contest Language Revocable Trust •Avoid ancillary administration •Privacy 10 Provides for Trump G4
Trump Revocable Trust •1st $5,490,000 passes to GST Trust •(unless allocated to IDGT during life) • Separate share for each child GST Trust • Trustee discretion over distributions $5,490,000 FBO Children • Child has limited power to appoint • Passes to future generations free of estate taxes in children’s estates
GST Trust FBO Grandchildren
11 Provide for the First Lady
• Financial needs • Age • Pre-Nuptial obligations • Right of Election • Estate tax deferral • Relationship with children from 1st and 2nd marriage • Independent fiduciary
12 Helps All Liberal Causes… While Reducing Taxation - $100M 20 Year Testamentary CRUT
FET deduction: $30,607,960 Trump present value of remainder Revocable Trust CRUT distributes remaining passing to Foundation balance ($100M) to CRUT Foundation at end of 20 $100M CRUT distributes $100M to year term 5% Payout, 20 children over 20 year term years Donald, Ivanka Eric Tiffany Barron Jr. $20M $20M $20M $20M $20m over 20 over 20 over 20 over 20 over 20 years years years years years
Trump Foundation – Trustee $100M
13 Passes Wealth at the Right Time, to the Right People and the Right Amount
$50,000,000 ILIT Trump Revocable Trust Melania ; then to children equally. Avoid Ancillary Estate Administration FET savings = $20,000,000
GST Trust $100M CRUT $ 5.49M QTIP for Melania 5% Unitrust Children in Trusts
FBO Trump Donald Ivanka Eric Tiffany Barron Grandchildren Foundation Trump, Jr. Trump Trump Trump Trump
FBO Great Grandchildren 14 Donald Jr. & Eric: In charge at Trump RE, LLC Recapitalization
Trump RE, LLC Operating Agreement Appoint Donald Jr. & Eric Managing Member s 99 Non-Voting Units 1 Voting Unit FMV = $700,000,000 Apply 35% Discount for Lack of Control & Lack of Marketability Becomes $455,000,000 1 NV Unit = $4,550,000
Potential FET Savings - $98,000,000 15 While Tiffany & Ivanka Manage: Trump Entertainment, LLC
Trump Entertainment, LLC Tiffany & Ivanka Managing Members
99 Non-Voting Units 1 Voting Unit FMV = $500,000,000 Apply 35% Discount for Lack of Control & Lack of Marketability Becomes $325,000,000 1 NV Unit = $3,250,000
Potential FET Savings - $70,000,000 16 To Protect Assets From Invaders… Build a Wall
The Trump Wall Family Limited Partnership All 5 children as GP’s Majority rules
99% Limited Partnership Units 1% General Partner Unit – Trump Management, LLC
FMV = $100M Apply 15% Discount for Lack of Control & Lack of Marketability
Becomes $85M 1 NV Unit = $ 850k FET Savings - $600,000
17 All Trumped Up
Trump Management LLC
Owns 1 Voting Unit in each of:
1. Trump RE LLC 2. Trump Entertainment LLC 3. Trump Wall LLC
18 Can you Trump this?
Trump Management, LLC owns: 1% Voting Interests in:Trump RE LLC, Trump Entertainment, LLC Trump Walls, FLP Duties are irrevocably delegated
Trump Wall Family Trump RE, LLC Trump Entertainment, LLC Limited Partnership Trump Holdings, LLC “TH”
Owns 99 Non Voting Units in: • Trump RE LLC ($455m) • Trump Entertainment LLC ($325m) • The Trump Wall FLP ($85m) • Discounted Value of $892,000,000 generates $53.5m p\y @ 6% FET Savings: $162m Discounted Value of 1 TH Non Voting Unit $8.92m generates $535k Income
3 Year GST IDGT Optimized Zeroed Out GRAT Seed EE gift = 10% cash Requires 41.05764% 88.8 TH Units Can buy $100m Gift equal to $0.12 Purchase 11.2 TH units 19 Trump Management, LLC Corporate Governance - Guiding Principles for Operating Agreement
Trump Management owns 1% Voting of each entity, and is to managed by: 1. Donald Jr., 2. Ivanka, 3. Eric, 4. Tiffany, and 5. Barron when he attains age 30.
Simple Majority Vote Governs 20 Transferability
1. Transferability Restrictions a. Permissible transfers to descendants & trusts for descendants b. Right of first refusal to other members or Company c. Estate option - buy out in event of death d. % limitations on Company/Members obligations to purchase annually
2. Options for Purchase Price a. Sale at stipulated value as determined annually by accountant b. Revenue Ruling 59-60
21 Protect & Preserve the Trump Legacy
• Reduced estate tax exposure • Provided for Melania • Provided for Donald, Jr., Eric, Ivanka, Tiffany and Barron • Created Corporate Governance • Protected assets • Provided for charities • Minimized the risk of litigation • Preserved legacy for generations • Left the Empire intact •Tweak & modify as necessary
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